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Hedge Funds Have Never Been More Bullish On AeroVironment, Inc. (AVAV)

The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 18.7% through May 30th, vs. a gain of 12.1% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards AeroVironment, Inc. (NASDAQ:AVAV), and what that likely means for the prospects of the company and its stock.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Noam Gottesman GLG Partners

We're going to take a look at the latest hedge fund action encompassing AeroVironment, Inc. (NASDAQ:AVAV).

How are hedge funds trading AeroVironment, Inc. (NASDAQ:AVAV)?

At Q1's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 44% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVAV over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AVAV_jun2019

Among these funds, Renaissance Technologies held the most valuable stake in AeroVironment, Inc. (NASDAQ:AVAV), which was worth $10.9 million at the end of the first quarter. On the second spot was Fisher Asset Management which amassed $9.2 million worth of shares. Moreover, Millennium Management, Citadel Investment Group, and Citadel Investment Group were also bullish on AeroVironment, Inc. (NASDAQ:AVAV), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, key money managers were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in AeroVironment, Inc. (NASDAQ:AVAV). Citadel Investment Group had $6.2 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also made a $0.8 million investment in the stock during the quarter. The other funds with brand new AVAV positions are Minhua Zhang's Weld Capital Management, Michael Platt and William Reeves's BlueCrest Capital Mgmt., and Dmitry Balyasny's Balyasny Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as AeroVironment, Inc. (NASDAQ:AVAV) but similarly valued. We will take a look at Shutterstock Inc (NYSE:SSTK), Ameris Bancorp (NASDAQ:ABCB), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), and Hostess Brands, Inc. (NASDAQ:TWNK). This group of stocks' market values match AVAV's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSTK,17,111417,1 ABCB,17,126038,-1 MDRX,21,200430,3 TWNK,24,132667,4 Average,19.75,142638,1.75 [/table]

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $41 million in AVAV's case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand Shutterstock Inc (NYSE:SSTK) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks AeroVironment, Inc. (NASDAQ:AVAV) is even less popular than SSTK. Hedge funds dodged a bullet by taking a bearish stance towards AVAV. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AVAV wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AVAV investors were disappointed as the stock returned -9.5% during the same time frame and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in the second quarter.

Disclosure: None. This article was originally published at Insider Monkey.